Crypto lender Arch Lending is preparing to expand into loans backed by tokenized equities as the market for onchain stocks grows and lenders begin exploring new collateral uses for the assets.

Himanshu Sahay, Arch's co-founder and chief revenue officer, told Cointelegraph's Chain Reaction podcast that the lender plans to enter the market "pretty soon," pointing to a need for credit against tokenized stocks.

Such loans would extend to equities the collateralized borrowing model long used for cryptocurrencies, allowing holders to borrow against their onchain stock positions without selling the underlying shares.

Sahay said tokenized equities have grown rapidly over the past year, but lending against the assets remains limited, and he predicted that more lenders will enter the market. He pointed to tokenized equities issued by firms including Superstate, Robinhood and Securitize, saying he expects multiple lenders to eventually participate in providing credit against such assets.

Source: Cointelegraph

Arch has already expanded beyond cryptocurrencies into tokenized real-world assets, launching loans backed by Paxos Gold and Tether Gold in recent weeks, according to Sahay. Still, crypto dominates the firm's existing loan book, with Bitcoin (BTC) accounting for more than 80%, Sahay said. He added that Arch has recently seen growing interest in XRP as collateral, particularly among US borrowers.

Related: Kraken brings DeFi yield to tokenized stocks and ETFs

Tokenized stocks enter lending markets

Arch would not be the first lender to move into tokenized-equity credit, with tokenized stocks and exchange-traded funds (ETFs) already entering lending and collateral products.

In February, Ondo Finance launched DeFi lending markets for two of its tokenized ETFs through an integration with lending protocol Morpho. Ondo's tokenized versions of the SPDR S&P 500 ETF and Invesco QQQ can be used as collateral for borrowing on Ethereum.

Tokenized stocks are also beginning to find uses beyond dedicated lending markets. In July, Kraken made 10 xStocks eligible to back futures and margin positions, while Coinbase's B20 stocks launched on Base in August with price-feed infrastructure designed to support use cases including DeFi borrowing and lending.

Together, the integrations show collateral acceptance for tokenized stocks spanning decentralized lending protocols and centralized trading platforms alike.

Tokenized equities. Source: RWA.xyz

The growth in lending use cases comes as the tokenized equities market itself has expanded sharply. The value of distributed tokenized stocks has climbed to about $3.15 billion from roughly $630 million a year ago, according to RWA.xyz data. Whether credit capacity catches up with an asset base that has grown roughly fivefold is one of the market's open questions as Arch prepares its near-term entry.

This article originally appeared on Cointelegraph.